EUR/JPY 2025: Euro Yen Exchange Analysis and Investment Opportunities in Yen

Extreme volatility marks the performance of the EUR/JPY pair in 2025

The euro-yen exchange rate has experienced unprecedented volatility during the first months of 2025, fluctuating between 155.6 and 164.2 yen per euro. This movement of over eight yen reflects how markets are simultaneously processing significant changes in Japan and Europe’s monetary policies, as well as global trade tensions that redefine investors’ risk appetite. The pair traded near 161.7 ¥ at the start of the year, hit lows of 155.6 ¥ on February 27, and reached highs of 164.2 ¥ on May 1, recently closing around 163.4 ¥.

Key drivers behind the euro-yen change

Japanese monetary tightening versus European easing

The Bank of Japan raised its benchmark rate from 0.25% to 0.50% in January, marking the highest level since 2008 and signaling a shift toward monetary normalization. This decision initially strengthened the yen, although the momentum was brief because European yields remained much higher. Simultaneously, the European Central Bank implemented three consecutive rate cuts (January 30, March 12, and April 17), lowering its deposit facility from 4% to 2.25%. This divergence in policies is drastically reducing the yield differential between the two economies, a factor that historically supported euro demand over yen.

Risk aversion due to US tariffs

In February, Washington announced a general 10% tariff on all imports and an additional 20% for EU goods. Fears of an escalation in trade tensions activated demand for safe-haven assets, pushing EUR/JPY toward its lows of 155.6 ¥. Although tariffs came into effect effectively in April, markets had already priced in the impact, limiting subsequent oscillations between 158 and 161 ¥.

Yen as a safe-haven currency

The yen’s defensive strength lies in Japan being a major global net creditor with financial independence from external financing, factors that generate institutional confidence. Additionally, many traders finance carry trade positions using the yen as the funding currency; when markets deteriorate, unwinding these strategies leads to massive yen repurchases. The Japanese forex market stands out for its size and liquidity, making it the most accessible Asian means for quick purchases during episodes of alarm.

Chinese stimulus activating risk appetite

In May, Beijing injected liquidity by reducing its 7-day repo rate to 1.40% and relaxing bank reserve requirements. This stimulus revitalized Asian equity markets, temporarily deactivating yen hedging demand. The euro-yen change reacted by quickly climbing toward 164.2 ¥ as investors abandoned defensive positions.

EUR/JPY projection for the end of 2025

The battle between monetary policy divergences

Market curves anticipate that the Bank of Japan will raise its rate to 0.75% in summer and to 1.00% in autumn. This gradual adjustment would erode the profitability of yen-funded carry trades, providing structural support to the Japanese currency. Simultaneously, the ECB is likely to cut rates to 2.00% before December due to European growth slowdown and moderating inflation. This narrowing of the yield differential to just over one percentage point would eliminate the incentive that historically compensated for the risk of holding euros.

Base scenario: downward range with fluctuating limits

The euro-yen will likely trade within a broad corridor but with a gradual downward bias. During periods of normalized risk appetite, the pair should find resistance above 165 ¥. Conversely, during geopolitical shocks, unexpected inflation data in the US, new trade tariffs, or stock market corrections, the yen would regain its defensive role, potentially pushing the pair toward the 158-160 ¥ zone. Our central scenario places EUR/JPY near 162 ¥ by year-end, with a moderate tilt toward a slightly stronger yen if the Bank of Japan confirms continued hikes in 2026.

Technical reading of EUR/JPY: slowdown indicators

The daily chart shows a moderate bullish bias, although exhaustion signals are emerging. The price trades above its main moving average (approximately 161 ¥), confirming the upward trend since early March. However, recent candles show narrow bodies clustered near the upper Bollinger Band (upper band 164.0; average 162.5), indicating weakening buying momentum.

The 14-period Relative Strength Index (RSI) was at 56 after touching highs of 67 days ago, retreating from overbought territory. Additionally, it shows a bearish divergence against the May 1 high (164.2 ¥), suggesting a possible pause or correction soon.

Critical technical levels:

• Immediate support: Bollinger middle band at 162.5 ¥
• Secondary support: Confluence of lower band and moving average around 161 ¥; a break below would open the way to 159.8-160 ¥
• Main resistance: 164.2 ¥; a close above would allow extension toward 166-168 ¥

Investment strategies tailored to time horizons

Short-term trading (3-6 months)

The pair remains oscillating within the 160-170 ¥ corridor. When the price reaches the upper zone (165-170 ¥), traders can take short positions in euros/long in yen with an initial target at 162 ¥ and a disciplined stop at 171 ¥. Pre-decision days of the Bank of Japan often generate quick moves of 1-2 yen; active traders can capitalize on volatility using small-sized instruments.

Medium-term accumulation (until end of 2025)

Financial institution projections converge on a 160-170 ¥ range by year-end. A prudent tactic is to gradually accumulate yen: buy when EUR/JPY exceeds 163-164 ¥, averaging entries and reducing single-point risk. Those needing euro flow hedging can establish forward contracts or yen deposits at current levels; costs decrease as the rate differential contracts.

Profit-taking

If the pair approaches 160-162 ¥ after expected hikes by the Bank of Japan in summer and autumn, it is advisable to realize at least part of the gains, keeping the rest as protection against geopolitical shocks that historically favor the yen.

Main risks and considerations

• Unexpected pause by the Bank of Japan: If Japanese inflation moderates, rate hikes could be suspended
• European inflation rebound: An unforeseen increase in core inflation would halt ECB rate cuts
• Prolonged stock rally: Could reactivate carry trade, pushing the pair back toward 167-168 ¥
• New tariff rounds: Escalation between US and EU trade could boost the safe-haven yen toward 158-160 ¥
• Signs of trade tension easing: Would allow rebounds toward 167-168 ¥

Maintaining clear stops and reviewing exposure after each central bank meeting remains essential for risk management.

Historical perspective: evolution of EUR/JPY since 1999

Since its inception in 1999, the EUR/JPY pair has demonstrated how the yen acts as a safety cushion during turbulence. During the 2008 financial crisis, the yen strengthened significantly while the euro depreciated due to instability in the Eurozone and debt crises in the 2010s. Europe’s economic recovery and Japan’s recent expansionary policies favored a gradual euro appreciation. Today, the pair again reflects the tug-of-war between a yen regaining safe-haven status and a euro under pressure, oscillating in the 160-165 ¥ zone.

Final reflection: opportunities in the euro-yen change for 2025

The end of 2025 will likely see projections converge in the 158-170 ¥ range, reflecting consensus on a cycle change: the Bank of Japan normalizes policy after years of near-zero rates, while the ECB reduces rates. The yield differential, which was around two points a year ago, will converge to just over one, eroding the classic yen financing incentive for euro acquisition.

With EUR/JPY bouncing between 160 and 170 ¥, prudent traders should consider buying yen on rebounds toward 165-170 ¥, targeting objectives at 160-162 ¥ with controlled risk at 171 ¥. The main risk remains if the Bank of Japan pauses hikes or European inflation resurges, but the structural bias clearly favors the yen.

For the first time in two decades, carry trade has lost its one-way character, suggesting a downward but gradual trend for EUR/JPY in the coming months. Those building yen positions with judgment, patience, and well-defined risk limits can capitalize on this historic window of moderate but sustainable revaluation.